UNFI Seen Eying Safeway

ELLIOT ZWIEBACH

PLEASANTON, Calif. — Safeway here may be poised to shift its natural and specialty food business to United Natural Foods Inc., Providence, R.I.

According to Edward Aaron, a Denver-based analyst with RBC Capital Markets, Toronto, Safeway's contracts with the current distributors, Kehe Food Distributors/Tree of Life, Romeoville, Ill., and DPI Specialty Foods, Evanston, Ill., are expiring this summer, “and given its low-cost position and high service levels, we believe UNFI is emerging as the winner of this business.”

If Safeway does switch to UNFI, Aaron said, the supplier would add as much as $250 million to $300 million worth of business, or an additional 7%, in incremental sales.

Representatives at Safeway and UNFI could not be reached for comment.

Earlier this month, UNFI began distributing product to conventional supermarket operator Giant Eagle, Pittsburgh, as per a new contract that was announced last September. The new distribution pact with Giant Eagle, estimated at about $40 million annually in sales for UNFI, comes about a year after UNFI began serving a group of other traditional retailers, including Giant-Landover, Kings Super Markets, Wakefern (ShopRite), Lunds and Byerly's, and Ukrop's (now Martin's). Those contracts were launched in the January-May period of 2010.

In first quarter of UNFI's current fiscal year, sales to conventional supermarket grew 31% over year-ago levels, following a 25% increase in the fourth quarter of last year and 11% growth in sales to that segment overall in the most recent fiscal year, compared to the preceding year.